The world's largest automaker, General Motors (NYSE:GM), announced its latest round of vehicle recalls yesterday. This one concerns roughly 950,000 Chevy, GMC, Oldsmobile, and Buick SUVs from model years 2002-2004, as well as nearly 550,000 Chevy, Pontiac and Oldsmobile sedans and a relative handful (about 6,000) Cadillacs and Corvettes. Add all those up and this multiple recall totals roughly 1.5 million vehicles -- or more than the company's entire sales for the past three months.
Want more statistics? Here's one that will blow you away: To date, in 2004, GM has recalled a staggering 10.5 million vehicles. According to its media relations site, that's more vehicles than the company has sold over the entire past two years (and I thought that Honda's (NYSE:HMC) July recall was bad -- it only had to recall about one year's worth of cars). The combined effect of the recalls is to push GM's sales numbers all the way back to mid-2002.
(OK, I know I'm just grandstanding here. The sales are still sales; there's just some repair work to be done and then the cars go back to their owners. But you get my drift. The magnitude of this year's recalls boggles the mind.)
This isn't the first time we've written about GM's quality control -- and, consequently, its brand image -- problems. But in case you haven't noticed, a real trend is emerging here. Put simply, it goes like this: The public perception of GM as a producer of low-quality autos erodes GM's pricing power. GM, therefore, finds it harder and harder to sell its vehicles at full price, and must resort to cash rebates and other sales incentives to move its products. Meanwhile, Japanese competitors such as Honda, Toyota (NYSE:TM), and Nissan (NASDAQ:NSANY), which don't bear the "low-quality" albatross, are able to sell their wares at full, or nearly full, price.
This erodes GM's profit margins, bolsters its competitors' profit margins, and weakens GM's ability to compete on either quality or price. Phil Wohl foreshadowed the ultimate endgame of this trend earlier this week: At some time not far in the future, GM will no longer be the world's largest automaker. Toyota will add that label to its current title of "world's most profitable" automaker.
Read about the other major trend in auto news -- skyrocketing hybrid-vehicle sales:
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Fool contributor Rich Smith owns a Chevy S-10, but has no ownership or short interest in any companies mentioned in this article.
